Q3 2019 Earnings Call
And gentlemen, today's conference scheduled to begin shortly leased continue to stand by Vicki sleep patients.
Good morning, and welcome to the H. Young Corporation third quarter 2019 earnings Conference call. At this time, all participants I don't listen only mode.
Later Delfino question answer session and instructions will follow it at that time.
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It is my pleasure to turn the call over to your host Katy casing Senior Vice President strategy and communication.
Katy you May proceed.
Good morning, and thanks for joining us today.
No I know smeared check Gordon Aegeans, President and Chief Executive Officer, and David Morris, Aegeans, Executive Vice President and Chief Financial Officer.
We issued a press release yesterday that will be reference during the prepared remarks on this call you can find a copy of our press release and our Safe Harbor statement on the Investor section of agents website at Www Dot E.G.N. dotcom.
During this call the company will make forward looking statements, which are inherently subject to risks and uncertainties. The company does not assume the duty to update forward looking statements with that I'm pleased to turn the call over to check Gordon.
Thank you Katy and good morning to everyone joining us on the call today.
It's a de Jonge third quarter results with adjusted EPS of 40 cents coming at the high end of the range we provided in September .
As always were driven by exceptional performance from our core North America's T.I.P.P. operation as well as strong gross margins across all of our segments that offset temporary revenue softness in a few parts of the business.
We've been successful executing on a number of key initiatives to drive results. This year and we continue to reaffirm our 2019 outlook to achieve modest growth in adjusted EPS compared to last year.
[noise] backlog of orders wells will highlight for the quarter are acceptable basis, excluding exited or to be exited businesses consolidated orders were up 16% Q3 compared to the same period a year ago.
[noise] on the same basis, the strong orders quarter resulted in a 5% growth and ending backlog.
I spend a few minutes discussing operational highlights in the market outlook within each of the three segments.
Turning first infrastructure solutions, the strong improvements in the North America C.I.P.P. business continued to be the largest contributor the age yards achievement of targeted results. This year.
Significant productivity gains be our crews, which has been a focus in 2019 has led to increased revenues and nearly a 200 basis point gross margin improvement average weekly crew productivity year to date has increased 8% from the prior year and control. The production Mrs are trending at historic lows as teams.
Made improvements across multiple areas, including certain client readiness.
Product quality and equipment and manpower availability.
And we continued net navigate in extremely tight labor market that sometimes required us to merge crews to fully staffed projects.
But we have seen significant benefits from expanded crews and supervisor trading upgraded project management and improvements in equipment deployment and onsite troubleshooting.
In addition to the strong operational performance the market outlook for North America C.I.P.P. is robust new orders in the quarter reached the highest level more than a year and we've been able to increase ending backlog, while preserving our margins.
We've also been successfully share and improving our win rate for medium and large diameter projects and adding more higher value jobs to our backlog mix, which tend to deliver greater revenue and margin contributions.
Once such notable when is the 16 million dollar wastewater rehabilitation project to Georgia that we announced in September .
This project includes a mix of small medium and large diameter work and will be executed over the next 12 months. We're excited about this project and continue to evaluate ways to add even more large diameter work to our mix.
We recently introduced a new spray aren't you upon the product to rehabilitate large diameter pipes, such as Giotti Colbert.
During the quarter, we received our first commercial order to rehabilitate a large diameter Colbert in Florida.
Looking at the rest of the segment revenues and ending backlog were negatively impacted by economic and geopolitical challenges in our Asia Pacific Insituform in Fife businesses.
However, we expect to see activity pick up in the fourth quarter. It into 2020 as a result, when announced government stimulus and other intervention.
For example, Singapore just announced in mid October plans to spend more than 700 million U.S. to upgrade housing infrastructure, which should drive increased demand for our structural strengthening offerings in the face business.
We continue to that's a number of growth catalyst within infrastructure solutions, primarily through investments in technical differentiation.
On the pressure pipe side, we completed final modifications under development of the robots to be used for lateral reinstatement of service connections, we plan to roll out the robots for eight inch diameter pipelines first and are looking for field testing opportunities in the fourth quarter.
In conjunction with the development of robots. We've also made enhancements to our installation techniques for small diameter pressure pipe Whiners, it's been a long road to get here, but we believe we now have the right organizational structure product offering and technology to successfully bring the solution to the market.
Uneasy felt offering we successfully executed several third party field test in the quarter and secured a new 3 million dollar project in Ohio, where crews we use you'd be fell three abilities. Some of the small diameter pipelines.
We have finalized the commercial offering which offers a 20% to 30% cost savings versus traditional UBI glass liner and plan to distribute this through our contracting business as well as via third party sales.
This approach maximizes benefit reach we receive on the manufacturing side and will expedite the penetration of this new offering into the market.
We also continued to manufacture unique last liners and have seen increase interest for our product primarily in Europe , we're glass liners have a greater share of the market.
With the exit of were international CRP contracting activities, we are focused on how to maximize or third party sales business by leveraging our manufacturing footprint and strong market position.
We have a comprehensive offering of both glass and felt liners and plan to expand our technical support to grow these businesses in underserved markets.
We believe that small investments and technical expertise and business development will yield significant topline growth and margin accretion over the next 12 months.
We expect each of these growth catalysts to yield incremental earnings for infrastructure solutions segment in 2020, and look forward to providing more details in the coming months.
Within the corrosion protection segment strengthen the industrial linings business has been a highlight year to date with sharp increases in earnings and margins. We expect these trends to continue and ending backlog for the industrial linings business is the highest level in nearly six years driven by significant increases in the U.S. and middle East.
In the U.S., we are benefiting from the state steady funded with new construction projects, including continued investment in the Permian. We also signed a new agreement in the quarter with the midstream operator to rehabilitate 50 miles of regulated pipelines with our Tite liner system.
Successful execution of this project could lead to additional rehabilitation opportunities and the midstream market versus the more traditional new construction focus for this business.
In the Middle East, we've been performing linings work for nearly eight years predominantly in Kuwait Oman earlier. This year, we were successful in getting HCP liner specified into projects in Saudi Arabia, and we announced in the third quarter that are you STS joint venture was awarded to Tite liner contracts worth nearly $11 million.
These new awards are two of seven active projects, we have underway in the country and we expect a steady stream of opportunities moving forward.
The joint venture also commission, new Roedl lighting plant local bar.
Providing capability for pipeline fittings like manifolds and tease. This facility is the first in Saudi Arabia, and the largest of its kind in the middle East and gives us the ability to offer more comprehensive wining solution.
We expect many of our new awards in that region to include road aligning component.
Finally, we continue to work with national oil companies in the region to further expand or middle east footprint.
In the coatings business, we were impacted in quarter by a couple of project delays in the Middle East and South Africa, I'm, Sorry, South America do we expect this activity resumed later this year it into 2020.
The funnel for significant middle East offshore investment remains strong and we expect to sign several projects in the $7 million to $10 million range over the next three to six months that we'll execute over the 2021 timeframe.
I spoke last quarter about our efforts to develop laser well profiling tool that analyzes in predicts world portability.
We will use this profiling to on upcoming offshore project in the middle East to commercially demonstrate the technology and we'll continue working with our third party technology partner to create an extensive database for defining objective standards to measure Weld code ability.
Within the cathartic protection business, we're starting to see the impact to North America cost reduction initiatives. The U.S. business delivered improved operating income compared to the prior year. However results are not yet where we'd like to be in Canada. The typical uptick in activity in the second half of the year did not materialize.
Due to market weakness and results suffered in the quarter. Despite the slower progress we are moving in the right direction for both businesses and continue to focus on improve utilization driving growth in revenue streams at higher margins lower operating risk and evaluating the rate footprint to achieve optimal market coverage and operating leverage.
We expect to see a turnaround this business, which represents significant earnings upside for age on over the next 12 to 24 months.
Despite market softness in Canada, U.S. backlog position is solid and ended up the quarter more than 20% higher than the prior year. We also expect to see additional market Tailwinds for the next several years driven by recent new regulation for midstream oil and gas pipelines. This month FEMSA lead rulemaking Bob.
I'd for regulated pipelines after nearly a decade at work issued the Mega rule covering expanded corrosion integrity assessment requirements for both oil and gas pipelines as a result of these changes the regulatory requirement for pipeline survey work will increase significantly increase which represents a good opportunity for us.
I'd protection business.
We're also continues to be substantial focus on stringent compliance reporting and the need for information to be traceable verifiable incomplete.
This is an area, where we can differentiate with our asset integrity management database last quarter. We completed efforts to put nearly 600 mobile advanced data collection units in the field to electric electronically feed data repository enable more advanced analytical capabilities for our annual survey process.
Over the last several months the number of active users in putting annual survey information into the database has grown exponentially and now the analytics capability is being used on for more frequent basis, we are starting to better understand and articulate the value proposition to the entire data management system in terms of significant piece.
Currency in proved reporting with customers.
After several years of investment we're starting to gain more traction with this technology to provide a more robust and efficient offering which should lead to greater market share a higher class to switching and an improved margin profile for these services going forward.
In our energy services segment, we continue to strengthen our core maintenance business, where we've grown operating income by more than 40% in the first nine months compared to the prior year.
Ending backlog for the energy services segments segment grew 12% from the prior year largely driven by increases in maintenance services.
We're currently bidding on multiple turnaround opportunities to take place early in 2020 and expect turnaround activity do increase next year. Following what we viewed as temporary slowdown earlier this year.
We made progress in the quarter on our efforts to expand our service offerings outside of the West coast market.
We do not have plans to expand into the Gulf area is that more markets wells very competitive, but we see other opportunities for geographic growth even outside that market in the third quarter, we perform to different projects in Hawaii, and a specialty sure specialty service offering in new Mexico. We also opened to Salt Lake City office.
To establish a foothold presence in the Rocky Mountain region.
We are leveraging our strong relationships with blue chip customers in California in Washington to participate new bidding opportunities for annual maintenance contracts in the region and expect these activities to be a growth driver in 2020.
That wraps it quick review of segment highlights when we started the year, we laid out key focus areas to deliver our financial targets for 2018 and position the company for further growth into 2020. These focus areas included substantially completing our multiyear restructuring initiative.
Returning to North America, see IP business to 2016 productivity levels.
Driving further improvement in the execution of the exciting protection business.
Maintaining energy services share in the West coast refinery market.
Our renewed focus on delivering more value to stakeholders through technological differentiation of expanded offerings and capitalizing on the strong middle east market funnel.
We've been successful in advancing.
It is which is why we continue to reaffirm adjusted earnings guidance outlook for the year.
Our progress and the commodity protection business has been slower than we would like but the strong improvement in our business has helped to offset that weakness.
Looking to 2020, I believe we are well positioned with market tailwinds and growth opportunities in each of our three segments, which should drive significant earnings expansion next year. We're looking through our annual budget. We are working through our annual budgeting process now and we'll look to provide an update on our outlook for next year in the coming months.
Much of my tenure over the last five years as CEO with spent reshaping the business through restructuring activities in market exits, though necessary. These actions. These actions were painful for our employees customers and stockholders I'm excited to exit that chapter and lead the company for with more focused strategy to drive sustainable growth.
In short shareholder value over the coming years.
With that I'll turn the call over to David to provide additional details regarding our third quarter performance and financial targets David.
Thank you Chuck and good morning to everyone on the call.
Chuck mentioned, we're pleased with our results in the third.
Which were in line with our expectations and the targets. We laid out previously revenues came in below our expectations in or infrastructure solutions, and corrosion protection segments, which I'll discuss more in a moment. However, topline impacts were offset by strong project execution, primarily in our infrastructure solutions segment.
And continued cost control across the organization.
Walking down the income statement for the quarter compared to the prior year reported revenues declined 9%.
Leading exited or to be exited operations revenues declined by 6% primarily due to lower contributions from several large middle east coatings projects completed in 2018.
The revenue declined drove a reduction in growth reduction in adjusted gross profits and adjusted operating income.
Guilty to hold gross margins of 22% flat with Q3 18 is notable and was driven by strong improvements in the infrastructure solutions business, which offset the loss of offshore coatings margins in Q3 18 in excess of 50%.
Below adjusted operating income we benefited from reduced interest expense on lower debt levels higher interest income related to the note receivable as part of the by your sale last year and lower FX exposure really late expenses.
Our adjusted effective tax rate of 23% was also slightly.
All in our adjusted earnings per share for the quarter were 40 cents compared to 45% 45 cents in Q3 18.
We reported a GAAP earnings per share of 19 cents for the quarter the adjustments between our GAAP and adjusted non-GAAP results consisted of 8.6 million a pre tax restructuring charges, primarily related to the losses on the disposal of assets and release of cumulative currency translation adjustments.
And wind down expenses severance and other head to head count reduction costs charges expected to be settled in cash represented 3.1 million of the total charges.
We also recorded $1.8 million or pre pre tax acquisition and divestiture related expenses, primarily related to the EPS at a multiple international businesses as part of our restructuring program.
I'll briefly walk through a review of our quarterly operating results by segment and discuss our financial guidance outlook for the rest of the year.
Infrastructure solutions delivered growth across all key metrics in this third consecutive quarter of year over year improvement in adjusted operating income driven by continued success in achieving productivity gains from our North America, CRPD business and the exit of underperforming international businesses.
Second quarter 2019, gross margins of 25% were the highest quarterly level in three years and we increased gross margins, an additional 30 basis points in the third quarter.
Reported revenues increased slightly from the prior year at more than 2% when excluding exited or to be exited businesses led by increases in the North America see IP business.
Revenues came in below our expectations for the quarter due to a higher mix of small diameter work, which resulted in lower sub contracting revenues. Additionally, we have consolidated some of our crews due to manpower manpower challenges in certain markets. Though this has resulted in fewer crews and lower revenue nars productivity improvements.
More than offset the topline impacts.
For the full year, we expect total revenues for the segment to be flat to down 2% compared to 2018 with revenue growth of 1% to 2% when excluding exited or to be exited businesses. This guidance is slightly reduced from our previous call to reflect the mix impacts experience in the quarter.
However, we are again, increasing our adjusted gross margin guidance to improved 250 to 300 basis points compared to 2018, driven by the strong trends we've seen year to date.
This puts our targeted gross margins for 2019 in the 25% range. We believe this performance should be sustainable going forward driven by continued operational discipline in the North America CVP business and an expanded focus on higher margin third party product sales following the exit of the international.
Contracting businesses.
We completed the divestiture of our Dutch VIP contracting business in October and as part of the transaction as good a long term to supply agreement with the buyer. We currently are on track to complete the sale of our Spanish and Australians pp contracting businesses by the ended the year and we'll have a long term to supply.
Agreement as part of each transaction, we expect the divestiture of our Northern Ireland business will extend into the first quarter 2020. However, this business has been a process positive earnings contributor for age on during 2019, and we expect similar performance in 2020.
Turning to Cook corrosion protection, we experienced an expected declining revenues and adjusted operating income in Q3 19 compared to Q3 18 due to the absence in 2019 of several large middle offshore coatings projects completed during 2018.
Territory expectations, Jeff highlighted this strong performance from the industrial linings business, which helped offset the lower the impact of lower contributions from the King in cathartic protection business as a result of market weakness. We also experienced project delays on several coatings projects in the Middle East and South America.
Variability and project timing is common in the coating business. Since we are so heavily dependent on the general contractors progress on a much larger scope of work. However, we're confident the work will take place and will be positive earnings contributor late in the fourth quarter and into 2020.
Despite the moving parts gross margin performance was solid at nearly 23%.
We also saw a third consecutive quarter, a double digit declines in SDMA spending as part of our focus on optimizing the hope overhead structure in the segment, primarily within the cathartic protection business.
For the full year, we expect corrosion protection revenues declined 23% to 26% from 2018, excluding the impact of exited or to be exited businesses revenues are projected to decline 13% to 16%.
The declines are primarily driven by a more than $40 million reduction in coating services revenues as a result of the absence in 2019 of the large middle East projects completed in 2018, and the large anthematic field joint coating project in the US which also was completed in 2018.
For the segment, we are targeting full year adjusted gross margins to be in the 21% to 22% range.
We expect to substantially complete the excess of our cathartic protection activities in the middle East and our industrial linings joint venture in South Africa by the end of the year.
And in material amount of wind down activities in the Middle East will continue to through the first six months of 2020.
We lead a small number of projects remaining in backlog. However, this work will be managed by a skeleton crew and we expect the operating risks to be very low related to this remaining activity.
Shifting to energy services the segment delivered fold increase in adjusted operating income led by improvements in maintenance and construction activities. You may recall in 2018, we experienced challenges on a large lump sum construction contract that doubled in scope over the course of the project and.
Unfavorably impacted performance in Q3 18, we've avoided similar challenges this year and also have been more selective in our bidding into construction projects to lower the operating risk that larger lump sum projects can bring our construction revenues were down in the quarter, leading to an overall, 2% decline in segment revenue.
Revenues in our core and maintenance business grew more than 10% in the third quarter and are up more than 20% year to date. This business can be a consistent performer and we're leveraging our strong relationships to expand into into new markets for the full year. We continue to expect segment revenues.
The decline, 2% to 4% primarily due to lower construction revenues as a result of more selective bidding and lower turnaround revenues following acceleration of activity in 2018 in advanced the labor transitions to the trade unions at year end 2018 for this segment.
Do you think adjusted gross margins are projected to increase 50 to 100 basis points.
That wraps will review of our operating results.
Adjusted corporate spend for Q3, 19 increased slightly compared to the prior year, primarily driven by higher incentive compensation expense.
Across all of Aegon SDMA spend for the first nine months of 2019 was down more than $11 million or 8% compared to the prior year period as a result of cost reduction initiatives and a continued focus on streamlining the overhead.
The overhead structure, we achieved this reduction in spending despite a 6 million dollar increase in incentive compensation expense in 2019 related to year to date plan achievement.
For consolidated Asia, we now expect to 7% to 9% decline in reported revenues in 2019.
Excluding the impact of exited or to be exited businesses revenues are expected to decline, 3% to 5% primarily driven by the lack of larger coating projects market softness in the Canadian cathartic protection business and lower construction and turnaround revenues in energy services.
Offsetting these declines or growth in our North America, CTP and global industrial linings businesses and in maintenance activities within energy services.
We continue to target modest improvements in both adjusted gross margins in adjusted operating margins.
Net interest expense is expected to be approximately $13 million for the year with reductions from 2018 due to lower expected debt levels as well as interest income related to the value divestiture bridge loan.
We expect our adjusted effective tax rate to remain within the 23% to 24% range all in despite the lower revenue targets for the year, we are reaffirming our outlook for modest improvement in adjusted earnings per share in 2019, we expect results in the fourth quarter to be on par with a third quarter and are targeting.
Adjusted EPS in the 38 to 40 sent range.
That wraps our review of Agios adjusted results and guidance for 2019.
Turning briefly to our cash flows net operating cash flows flow generation of $32 million year to date double duty doubled the prior year results and benefited from strong earnings generation and working capital improvements in the quarter.
Year to date, we have invested 21 million and maintenance and growth capital for our core businesses with investments in our North America, CVP business and in new robots to support upcoming coating services projects, and we repurchased 1.4 million shares of our common stock for 25 million through our open market share repurchase program.
For an average price of 17 46 per share. In addition, we repurchased an additional 159000 shares of our common stock for 3 million to satisfy tax obligations related to employee equity awards.
We ended the quarter with $55 million in cash which is on par with our June 30, ending balance we have gotten more comfortable managing to a lower level of cash for the business, particularly as we as a result of our international market exits, we feel good about our balance sheet strength in excess and access to liquidity to manage working capital needs.
And execute a balanced approach the funding the capital needs of the business, while opportunistically, returning cash to aegion stockholders to our share repurchase program.
For 2019, we're still targeting capital expenditures in the $25 million to $30 million range and we have approval to by an additional 7 million of AG on common stock in 2019 in open market share repurchase transactions. The ultimate violent buying levels will be dependent on share price performance, which has been strong.
Over the last several months.
That wraps will review of our third quarter results and outlook for 2019, we look forward to finishing 2019 with solid fourth quarter performance in providing more team more details on our growth targets for 2020 in our current call early next year with that update operator, we would be pleased to take questions.
Ladies and gentlemen, as a reminder.
You will need to press the Star then one.
Don telephone.
Your question please press the pound.
Please standby.
Thank you and your roster.
And our first question coming from the line off Eric Stine with Craig.
Yes.
Good morning everywhere.
Yes.
Yes, I'm fine.
See you there has been pretty noticeable acceleration of your wins here.
Over the last I don't know month, and I have two months. So I mean is that something that.
What do you attribute that to is that you gaining a little share in the market is it market strength.
Combination of both in is that something that you see a sustainable.
I think the market was very strong for us in Q3, particularly the the North America CPP market. We also announced several tite liner projects in the Middle East what I would expect going forward Q4 is never a strong from a C. IP perspective in terms of new orders I'm sure as we go through through Q.
Before it starts tailing off about Thanksgiving.
But as we look out over the next six months and into next year. The market sure seems strong to us as we move forward, we don't see any signs of weakness. So we're excited about that in the middle East, we announced some tite liner projects.
We're in the process of working through issues on some of the large coating projects, we would certainly expect too.
Now some of them over the next three to six months as I as I said earlier that market opportunity as it hasn't changed it is pushed back a little bit from where we thought it would be but overall, we don't see any any slowness in our markets with that with the exception to the oil and gas market in Canada is weak right now with that excess.
And the rest of our markets.
Seems strong to us.
Okay, and then I mean, just sticking with CPP obviously.
Great margin.
Number one you're happy with I mean is this something that.
It sounds like it's sustainable is there any potential upside to that just as you have more traction or get more traction and third party tube sales.
I think there is more upside part of it will be from mix as we get more as we get more tube sales remember that also our international contracting.
Businesses really dampen the margins in the business and as we've as we've exited those and replaced it with tube sales. Although two sales have lower revenue the margin. It really enhances the margin. We also continued to see upside for more productivity improvements in the in the North America see IP business I don't think you'll see the kind of.
Improvement we saw this year going forward, but we still think theres offered to improve the business.
Got it okay maybe.
Last one for me and just on the Youve curing product. It sounds like the testing has been successful I think in the past you've talked about kind of 100 million dollar market opportunity. I mean is that has that changed at all and thoughts on your your ability to participate in that market or capture rate.
Yes, what we see is the the construction value of that opportunity is about $100 million now the to the tubes sale will be will be a portion of that.
When we talked about what we see is about 10% of the north America's see IP business, maybe a little bit less than 10% is using UBI cure today and thats based on construction value not on to value.
But we continue to see that is as good opportunity and also a fairly near term opportunity. We expect to we expect to have success going into going into 2020, as we move forward with product.
And that that Revpor, Eric that represents the North America opportunity, there's a similar opportunity in Europe , certainly in the markets not as as large overall, but the percentage of that market today that is you'd be glass is much higher than in the us. So we through through our manufacturing facility in the UK, we'd be able to service that market to and.
Hopefully capture some share of that.
Movie glass today.
Got it okay. Thanks.
Thanks Art.
And finally sand gentlemen, I ask question. Please press the star agenda, one key on you touched on telephone.
Our next question coming from the line Sullivan.
Maxim Group your line is open.
Hi, Thanks, Hi, good morning.
Pipeline integrity, Chuck can you review your comments on the your pipeline integrity business and what is the regulation change or the regulation requirement change that you mentioned can you give more context to that.
So so FEMSA regulates.
The.
Mostly midstream and some upstream pipelines or what have to whats happened, our two things, Dave Dave defined to broader scope of what they consider regular Tory pipelines. They've also included.
More miles of pipeline in what they call high medium consequence areas, which means a frequency.
Doing surveys goes up so both both those represent market growth opportunities for corporal.
For core pro and that's all on your corrosion protection business.
On your pipeline integrity, Okay and then.
On your positive comments on C.I.P.P. is the it sounds like is it fair that entire north American market U.S. market, rather is growing faster than last year and to your comment earlier do you expect that growth to continue or it's stable going into next year I.
I think what were what we're seeing is that the market will be up this year, it's not going to be up dramatically, but it will be up we expected to be we expected to be up over last year. It's early for us to tell we can we can look out about six months.
Pretty well in that market, what we see.
Going into the market is it remains strong and I think we'd expect that that same kind of.
The increase next year in terms of the traditional gravity see IP work that we do.
Okay. Thank you and last for me I noticed a site I apologize if I missed it in your prepared comments in your energy services section you talk about new Geo opportunities and new cities is that what kind of facilities are you talking about when you highlight salt Lake City lie in Mexico refineries. So there is in the in the Rocky Mountain region.
Particularly in Salt Lake City and billings.
And sort of spread out through Wyoming, there's there's opportunities that theres smaller refineries maybe than what we see in the west coast or Texas, but we see opportunities for our maintenance and turnaround businesses that those facilities.
Okay. Thank you had last that sorry to the scale when David on them on the guidance on on the gross margin guidance across segments versus I mean, how should I look at the gross margins versus the operating income margins historically and I know you maybe changed the way you were talking about that a bit a couple of quarters ago, but I mean, how should I think about operating.
<unk> expenses per group versus the gross margin.
Okay.
We're still targeting.
Operating expenses as a percent of revenue for the entire company to be less than 15%.
We're not quite there yet, but that's that's where we're heading and then we haven't historically given any sort of operating margin guidance.
And then I think we gave the gross margin guidance in the release.
But certainly expecting to have improved leverage as we move forward.
Okay, and then and then on the guidance for Fourq, you 19 declared for the EPS range. Its 30, 840 cents, which is unchanged, but any comments on revenue direction for Fourq you are.
That's correct.
Yes.
Okay. Thank you for all the detail.
Okay. Thanks, Thanks to thank you.
Our next question coming from the line off.
Your line is open.
Morning oil.
Hi, Good morning, Hi, good morning.
So I know you guys aren't looking to give 2020 guidance, yet, but I was hoping we could just discussed.
In a bit more detail sort of how you're thinking about relative growth across the segment.
And then when you look at when you look at that profitability improvement.
When you look at profitability improvement heading out into next year. It seems like most set the opportunity for margin expansion is still in corrosion protection is not the right way to think about.
Where you might see the most uplift.
That's right now we see the biggest opportunity for margin expansion in in crop protection is going to come from two areas, we are making progress with.
The cathartic protection business and we we certainly expect that that will continue.
In 2020 in 2021, the other margin expansion become as we start executing some of the larger projects in the middle East.
Those projects have we are very very.
Accretive to our to our overall gross margin mix.
Okay great.
And then in terms of the some of the new technologies that you're introducing in the.
In the infrastructure solutions business with robotics solution. I mean are as you look out just 2020 and you think about your plans are you kind of.
Thinking about are incorporating any any growth from those initiatives.
And your expectations or is that more you'll kind of see how that plays out and the timing of how the timing of this product introductions guests. So so the way we're looking at that we certainly have expectations for for growth.
In 2020 from both let the pressure pipe lateral reinstatement and and from that you felt the the.
The challenges from a revenue perspective is that while we expect to bookings to be.
To be solid given the introduction introductory nature of the product. The revenue obviously comes a little bit later than the bookings, but what were what we're we're projecting I would say our modest increases in revenue due to both those projects.
They are certainly part of what we expect for growth for next year.
Okay.
And then not just shifting over to core pro and some of the softness you're seeing in the Canadian market.
Is this a you know you've obviously been taking a lot of actions to try and drive corporate margins higher.
You know where there are there new is it more sticking to the plan and executing on on these initiatives that you're but you've been implementing that what kind of get margins, where they need to be or are you sort of rethinking what some of the challenges are not business and how you addressed them.
It's it's both primarily looking at how we how we manage the business more more.
Actively we have we as we have solid revenue in the U.S. the Canadian through Canadian revenue was down.
I think we've taken some measures in Canada fundamentally restructure the overhead of the business and those of those have been successful and we'll continue to look at that but overall, we're looking very very hard to our productivity and also some of the pricing.
Okay, and then blocking it's blocking and tackling more than more than what I would what I would call significant restructuring moves.
Okay. That's helpful. And then last question and sorry, if I missed this early in the call but are you seeing how are you facing any challenges in terms of finding or retaining labor at this point.
Absolutely.
The labor market still very tight.
I think Weve I would say were more stable now than we were a year ago, but labor as a constant challenge and our side in particular there has been.
Sometimes sometime during the course of the quarter, where we had to combine crews because we weren't fully man.
And labor remains a big challenge for the business I would say.
Across all the all the categories a general labor are challenging right now.
Probably a little bit more stable than it was you're going to well, but still very challenging.
Okay.
Thanks, a lot.
Thank you.
And I'm not showing any further questions at this time I would like.
<unk>.
Mr. John .
For closing remarks.
Thank you operator, we will continue to focus on delivering our adjusted earnings targets as we close out 2019 and look forward to providing more updates on our outlook for significant earnings growth in 2020.
Thank you for joining us today and for your continued support of agents.
Ladies and gentlemen.
This conference call. Thank you for participating you may all disconnect good day.
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